Summary
- The energy sector has the third-largest representation in Tepper’s equity portfolio.
- Energy Transfer and EQT
EQT are among his top 10 holdings.
David Tepper (Trades, Portfolio)’s Appaloosa Management, the Florida-based hedge fund founded in 1993, has earned an international reputation for producing strong returns among Wall Street investors.
Known for being a distressed-debt specialist, filings show the billionaire guru’s firm focuses on investing in equities and debt of distressed companies, exchange warrants, options, futures notes and junk bonds. In 2019, Tepper converted his hedge fund into a family office as a result of becoming the owner of the Carolina Panthers NFL football team.
As of the end of the second quarter, the energy sector had the third-largest representation in Tepper’s $1.59 billion equity portfolio with a 22.65% weight.
Overview of Tepper’s portfolio composition by sector.
According to his 13F filing for the three months ended June 30, Tepper’s five largest energy holdings, excluding warrants, are Energy Transfer LP (ET, Financial), EQT Corp. (EQT, Financial), Occidental Petroleum
Investors should be aware that 13F filings do not give a complete picture of a firm’s holdings as the reports only include its positions in U.S. stocks and American depository receipts, but they can still provide valuable information. Further, the reports only reflect trades and holdings as of the most-recent portfolio filing date, which may or may not be held by the reporting firm today or even when this article was published.
Energy Transfer
The guru boosted his Energy Transfer (ET, Financial) position by 11.50% during the second quarter, bringing the total stake to 10.27 million shares. The position accounts for 6.43% of the equity portfolio and is now the sixth-largest holding. GuruFocus estimates Tepper has lost 4.05% on the long-held investment.
Tepper’s holding history of Energy Transfer.
The Dallas-based midstream energy company has a $36.25 billion market cap; its shares were trading around $11.85 on Tuesday with a price-earnings ratio of 9.39, a price-book ratio of 1.12 and a price-sales ratio of 0.43.
The GF Value Line
The GF Value Line shows the stock is fairly valued currently.
GuruFocus rated Energy Transfer’s financial strength 4 out of 10. In addition to weak interest coverage, the low Altman Z-Score of 1.33 warns the company could be at risk of bankruptcy in the near term. The weighted average cost of capital also overshadows the return on invested capital, so it is struggling to create value as it grows.
The company’s profitability fared better, scoring a 7 out of 10 rating due to operating margin expansion, returns on equity, assets and capital that top over half of its competitors and a high Piotroski F-Score of 7 out of 9, indicating conditions are healthy. Since revenue per share has declined in recent years, Energy Transfer’s predictability rank of one out of five stars is on watch. According to GuruFocus, companies with this rank return an average of 1.1% annually over a 10-year period.
Of the gurus invested in Energy Transfer, David Abrams (Trades, Portfolio) has the largest stake with 0.72% of its outstanding shares. Leon Cooperman (Trades, Portfolio) and Francisco Garcia Parames (Trades, Portfolio) also have significant positions in the stock.
EQT
The investor curbed his EQT (EQT, Financial) stake by 27.57% during the quarter to 2.85 million shares. The holding accounts for 6.15% of the equity portfolio and is Tepper’s seventh-largest position. GuruFocus data shows he has gained approximately 82.89% on the investment since establishing it in the fourth quarter of 2020.
Overview of Tepper’s holding history of EQT.
The natural gas producer, which is headquartered in Pittsburgh, has a market cap of $17.12 billion; its shares were trading around $46.86 on Tuesday with a price-book ratio of 1.89 and a price-sales ratio of 1.68.
According to the GF Value chart, the stock is significantly overvalued currently.
The GF Value Line shows the stock is significantly overvalued currently.
EQT’s financial strength was rated 5 out of 10 by GuruFocus. Although the company has issued new long-term debt in recent years, it is manageable due to adequate interest coverage. The low Altman Z-Score of 0.89, however, warns it could be at risk of bankruptcy. The ROIC also eclipses the WACC, so value creation is occurring.
The company’s profitability scored a 6 out of 10 rating, driven by strong margins and returns that top a majority of industry peers. EQT also has a moderate Piotroski F-Score of 6, indicating conditions are stable despite recording losses in operating income, and a one-star predictability rank.
With a 2.03% stake, Daniel Loeb (Trades, Portfolio) is EQT’s largest guru shareholder. Other guru investors with notable positions include Steve Mandel (Trades, Portfolio) and Jim Simons (Trades, Portfolio)’ Renaissance Technologies.
Occidental Petroleum
In the third quarter, Tepper trimmed his Occidental Petroleum (OXY, Financial) holding by 69.19% to 875,000 shares. The position accounts for 3.23% of the equity portfolio. According to GuruFocus, he has gained an estimated 189.04% on the investment so far.
Overview of Tepper’s holding history of Occidental Petroleum.
The Houston-based oil and gas producer has a $58.07 billion market cap; its shares were trading around $63.67 on Tuesdaywith a price-earnings ratio of 5.96, a price-book ratio of 3.21 and a price-sales ratio of 1.80.
Based on the GF Value Line, the stock appears to be modestly overvalued currently.
The GF Value Line shows the stock is modestly overvalued currently.
GuruFocus rated Occidental’s financial strength 5 out of 10. Despite having sufficient interest coverage, the Altman Z-Score of 2.02 suggests it is under some pressure since assets are building up at a faster rate than revenue is growing. However, value is being created since the ROIC exceeds the WACC.
The company’s profitability fared better with a 7 out of 10 rating, driven by strong margins and returns that top a majority of competitors. Occidental also has a high Piotroski F-Score of 7 and a one-star predictability rank.
Buffett is the company’s largest guru shareholder with a 29.22% stake. Dodge & Cox, the Smead Value Fund (Trades, Portfolio) and John Paulson (Trades, Portfolio) also have large investments in Occidental.
Antero Resources
The guru slimmed his Antero Resources (AR, Financial) stake by 27.85% in the second quarter. Now holding 1.43 million shares, the position has 2.74% weight in the equity portfolio. GuruFocus indicates Tepper has gained around 105.84% on the investment since the first quarter of 2021.
Overview of Tepper’s holding history of Antero Resources.
The oil and natural gas producer, which is headquartered in Denver, has a market cap of $10.99 billion; its shares were trading around $36.80 on Tuesday with a price-earnings ratio of 13.36, a price-book ratio of 1.84 and a price-sales ratio of 1.52.
The GF Value Line suggests the stock is significantly overvalued currently.
The GF Value Line shows the stock is significantly overvalued currently.
Antero’s financial strength and profitability were both rated 5 out of 10 by GuruFocus. Despite having a comfortable level of interest coverage, the Altman Z-Score of 1.690 warns the company could be in danger of bankruptcy. Value is also being created since the ROIC surpasses the WACC.
The company is supported by margins and returns that top a majority of industry peers. Antero also has a high Piotroski F-Score of 8 as well as a one-star predictability rank.
Of the gurus invested in Antero Resources, Simons’ firm has the largest stake with 1.17% of its outstanding shares. Loeb, Steven Cohen (Trades, Portfolio), Ken Heebner (Trades, Portfolio) and Stanley Druckenmiller (Trades, Portfolio) also have large holdings.
Enterprise Products Partners
The guru reduced his Enterprise Products Partners (EPD, Financial) holding by 4.89% to 777,980 shares. It represents 1.19% of the equity portfolio. Tepper has gained approximately 29.94% on the investment over its lifetime.
Overview of Tepper’s holding history of Enterprise Products Partners.
The Houston-based midstream oil and gas company has a $55.72 billion market cap; its shares were trading around $25.78 on Tuesday with a price-earnings ratio of 11.51, a price-book ratio of 2.16 and a price-sales ratio of 1.09.
According to the GF Value Line, the stock is currently modestly undervalued.
GuruFocus rated Enterprise Products Partners’ financial strength 4 out of 10, driven by insufficient interest coverage and a low Altman Z-Score of 1.77 that warns the company could be at risk of bankruptcy if it does not improve its liquidity. The company is creating value, however, since the ROIC is higher than the WACC.
The company’s profitability fared better with an 8 out of 10 rating. In addition to an expanding operating margin, Enterprise Products Partners has strong returns that top over half of its competitors. It also has a high Piotroski F-Score of 7 and a one-star predictability rank.
Bruce Berkowitz (Trades, Portfolio) is the company’s largest guru shareholder with a 0.16% stake. First Eagle Investment (Trades, Portfolio), the Fairholme Fund (Trades, Portfolio) and the Fairholme Focused Income Fund (Trades, Portfolio) also have large positions in Enterprise Products Partners.
Disclosures
I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours.
Source: https://www.forbes.com/sites/gurufocus/2022/09/23/david-teppers-favorite-energy-stocks/